Daily Brief China: Hang Seng Index, China Tower , Anhui Conch Cement, Midea Group Co Ltd A, Prosus NV, TYK Medicines, Anton Oilfield and more

• The Hang Seng Index has been falling in June and July, but our MONTHLY seasonal pattern model indicates the index has a very good chance to close August up.
• The condition we need, to forecast that August will be closing up, is to have July closing down, i.e. <17718.61.
• The index is WEEKLY OVERSOLD, so the timing to buy will be critical, because you want to get in early, but not too early (and July must close down).

• A month out from cutoff for the September rebalance, we see one potential change for the iShares China Large-Cap (FXI) (FXI US). 
• China Tower (788 HK) is a potential inclusion while China International Capital Corporation (3908 HK) should be deleted from the ETF.
• Shorts have been dropping in China Tower (788 HK) and are near their lows while increasing in China International Capital Corporation (3908 HK). 

• We believe Anhui Conch is near the end of a prolonged downturn. Earnings should have bottomed out in 1Q24, with highly visible sequential Q/Q improvements throughout the rest of 2024.
• The recovery is not demand-driven but cost-led as implementation of new national standards resulting in higher production costs led to industry-wide price-hikes, benefiting Anhui Conch the low-cost producer.
• We see mild rebound in cement demand in 2025 will pave the way for further price hikes, reinforce the company’s earnings recovery and catalyze valuation expansion.

• The CSRC has approved Midea Group Co Ltd A (000333 CH)‘s application to issue H-shares to be listed on the HKEX (388 HK). 
• Under the approval, Midea Group Co Ltd A (000333 CH) can issue up to 650.85m shares. Depending on the H-share discount, that could raise up to HK$43.6bn (US$5.6bn).
• The IPO is likely to be smaller and will depend on market conditions and the discount demanded on the H-shares. That in turn will determine index inclusion for the H-shares.

• The removal of their cross-holding structure has had a negligible effect on the respective discounts to NAV for Prosus NV (PRX NA) and Naspers (NPN SJ).
• We have seen a remarkable turnaround in Prosus’s operating performance during FY2024 and the market will focus on whether the new CEO can achieve his ambitions for “profitable growth”.
• The open-ended share repurchase program will continue as long as the discount remains “elevated”.

• TY-9591 has differentiated indication compared with the current listed third-generation EGFR-TKI, but it still depends on the final clinical results, which also bring more uncertainty to the commercialization performance.
• TYK’s development strategy requires it to invest heavily on head-to-head trials.Due to cash shortage, until TYK successfully addresses survival pressure,we recommend a more cautious assessment of pipeline prospects/future R&D arrangements.
• TYK is a “mediocre” company. The valuation (RMB3.08 billion) is based on optimistic expectations that core product will be successfully developed, become Me-Better, and commercialized smoothly.We’re, however, conservative about this.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield